I. Filing Jointly

It is cheaper and quicker to file a joint bankruptcy.  Obviously, if each spouse hires an attorney to file a separate bankruptcy, it will be twice the preparation and twice the cost.  Sometimes, that may be unavoidable.

Only married couples can file a joint bankruptcy petition.  So, if you are planning to divorce, and your relationship with the spouse is halfway cordial, it could be in both of your best interests to file the bankruptcy prior to issuance of the divorce decree.

Remember, the divorce is not legally effective until the final decree is entered by the court.  That means the fact you are in the process of divorce does not disqualify you from doing a joint bankruptcy.

By the same token, it is not necessary for both spouses to file for bankruptcy. Often, there are strategic reasons to file individually even if you are married.  [ video about separate filings ]

 More on Bankruptcy in Florida

II. When to File for Bankruptcy

You should understand the basic concept of a “fresh start.”  Your bankruptcy, assuming you qualified, will take care of all your debt up to the date of filing.

Under bankruptcy law, the key date is the filing of the petition. Everything that happens after that is considered your new life.

So, it probably does not make sense to file the bankruptcy until you get through all the major, foreseeable expenses related to your divorce (or whatever your situation is).  Just remember the cut off his the date of filing the petition for bankruptcy.  Whatever new debt you incur after you file for bankruptcy will not be discharged.  The new debt is part of your new life.  [video about discharge of debt ]

The bankruptcy process takes about four months on average, and sometimes much longer, depending upon which bankruptcy chapter you use, so you might have the feeling that everything that happens during that time is covered by the bankruptcy. It is not.

Also, be aware that at least eight years must pass before you will be eligible again to file for bankruptcy, so all new debt you incur after the date of filing your petition is here to stay.

So, give careful consideration to when you file for bankruptcy.

Chapter 7 Bankruptcy

III.  What about Domestic Obligations?

Whether you are the spouse obliged to pay or the spouse hoping to be paid, the issue of alimony and child support will be very relevant to you.

For better or worse, you should be aware that bankruptcy probably will not affect domestic obligations.

In other words, the bankruptcy code jealously protects debt related to domestic obligations. In fact, there are a few different classes of debt that cannot be discharged through bankruptcy, and payment of alimony and child support is one of them.

Obviously, each person’s case is somewhat different.  If you are dealing with divorce and considering bankruptcy, call today for a free consultation with a Florida bankruptcy lawyer.  This may not be a happy topic or a happy time in your life, but do try to keep in mind that bankruptcy protection exists for a reason and there can be many benefits if used correctly.

~ Jeff Harrington, Esq.

 It just sounds wrong, doesn’t it?  If the purpose of filing for bankruptcy is to get some breathing room and, eventually, a fresh start, how can a bank punish you by freezing your account?

Intuitively, it does seem wrong.  Legally, the question is somewhat complex.  In fact, courts across the country are somewhat divided in their treatment of this issue.

I guess there is no real reason to mince words here.  The only bank engaging in this practice is Wells Fargo (and, perhaps, the wholly-owned Union Bank).  Wells Fargo is a national bank, so that means different circuit courts have to consider the question of whether the practice is permissible.

Favorable Case Precedent

 My firm has offices in Florida, California and New York, so this article will focus on those jurisdictions.  As for California and New York, there is good news.  There is case precedent out of both the 9th Circuit (California) and the 2nd Circuit (New York) that is favorable to debtors.  Specifically, the courts have largely held that Wells Fargo’s practice is a violation of the bankruptcy code’s automatic stay provision.

As for Florida, there is some bad new . . . though it’s not time to totally throw in the towel.  The court in In re Young, 2010 WL 3965698 (Bankr. M.D. Fla. 2010) upheld Wells Fargo’s practice, finding that the account funds belong to the bankruptcy trustee after the case is filed.  As a result, (i) the Debtor is not entitled to the automatic stay, and (ii) the Debtor does not even have standing to challenge the bank’s actions.

Well, okay, that is not good, but it is not the end of the analysis.  First, the decision was in the Middle District of Florida only, so the Northern and Southern districts are not bound by the ruling and could certainly go a different direction.  Also, even in the Middle District, not all courts judges are bound by the decision.

Responsive Letter to Wells Fargo

If this situation applies to you and you are wondering what to do about it, here is a suggestion.

Our firm tends to take an aggressive stance when it comes to dealing with creditors.  Generally speaking, we find there is not a whole lot to be gained from being too soft-handed.  In this situation, the bank has already drawn first blood and demonstrated it is going to be antagonistic, so it does not seem you have much to loss by pushing back.

Here is a template letter you can use:

Via Fax & US Mail

[ Name of Bank Employee ]

[ Name of Bank ]

[ Address ]

RE: NOTICE OF VIOLATION OF AUTOMATIC STAY, PER 11 USC 362, THROUGH FREEZING OF DEBTOR’S BANK ACCOUNT

Debtor:

Case No.:

Dear Mr./Ms. _____________:

Please note this law firm represents the above-referenced debtor (the “Debtor”) such that future communications should be directed to my attention per the contact information below.

Our office recently received your correspondence, date February 26, 2015, indicating your bank has frozen the Debtor’s bank account pending instructions from the Chapter 7 Trustee. The purpose of this letter is to advice your office of its violation of the Automatic Stay imposed pursuant 11 USC 362 and provide you an opportunity to release the Debtor’s funds without costly motion practice.

While there has been some disagreement amoung the circuits as to the propriety of your company’s policy to freezing debtor accounts, the weight of the authority is on the side of finding your conduct to be a violation of the Bankruptcy Code worthy of sanctions.

Perhaps the Court in In re Weidenbenner, 521 B.R. 74 (Bankr. SDNY 2014) said it best:

After the bankruptcy case was filed, Wells Fargo did not create new deposit accounts in the trustee’s name. Instead, it placed a hold on a tangible amount of money in Debtors’ bank accounts. As Ms. Tafoya’s testimony at the evidentiary hearing demonstrates, Wells Fargo, by itself, made the determination to only place a freeze on accounts of $5,000 or more. The freezing of deposit accounts was not mandated by the Bankruptcy Code, ordered by the Court, or requested by the chapter 7 trustee. Wells Fargo simply decided to place a freeze on property of the estate and unilaterally determined who was allowed to access it. The Court cannot think of a better example of “control over property of the estate.”11 U.S.C. § 362(a)(3); seeIn re Mwangi, 432 B.R. 812 (B.A.P. 9th Cir. 2010)  (“Wells Fargo asserts it did not exercise control over property of the estate. We disagree. Wells Fargo could have paid the account funds to the trustee; it did not. Wells Fargo could have released the account funds claimed exempt to the Appellants when demand was made; it did not. Wells Fargo could have sought direction from the bankruptcy court, by way of a motion for relief from stay or otherwise, regarding the account funds; it did not. Instead, it chose to holdthe funds until a demand was made for payment that it alone deemed appropriate. If that is not ‘exercising control over’ the funds, we don’t know what is.”); see also In re Kessler, 2011 Bankr. LEXIS 994, 2011 WL 1042617, at *2 (Bankr. S.D. Cal. Mar. 4, 2011) (“[T]he Court agrees it necessarily follows that the Estate Funds are protected by the automatic stay.”).

Accordingly, your office is hereby advised of its violation of the Bankruptcy Code and demands immediate release of the frozen funds. Should your office fail to say release said funds within 48 hours, our office will be obliged to bring the matter before the judge and ask that (I) the Court enter an order requiring release of the funds, (II) the Court sanction your bank as a punitive measure, and (III) the Court award costs and fees for the action against your office.

Thank you for you prompt and positive response to this notification. For any questions or concerns, please feel free to contact me by the information below.

Best regards,

Naturally, the letter will not carry the same weight coming from the Debtor as it would from a lawyer’s office.  Nonetheless, it is worth a try.  You have nothing to lose, right?

If the letter does not do the trick, let us know.  We cannot say for sure what your judge will do about the bank’s conduct, but we think Wells Fargo is treading on thin ice.

~ Jeff Harrington, Esq.